Blame it on shrinking hospital budgets and reduced lab testing prices; successful labs are using Lean, Six Sigma, and process improvement to reduce expenses and boost quality

Topic number one at clinical laboratories and anatomic pathology groups across the nation is cost-cutting, for two reasons. First, it is budget time at hospitals and labs are being told to aggressively reduce their costs in 2015. Second, health insurers are paying less for medical lab testing.

Simply said, labs are experiencing one of the toughest financial squeezes in two decades. Dark Daily has written about the underlying trends responsible for this financial pressure. Nationally, hospital inpatient admissions are down at the same time that hospitals are being paid less per inpatient. In response, hospitals are asking all clinical departments—including their clinical laboratories—to prune staff and cut budgets for 2015.

Reduced Reimbursement Flowing to Clinical Labs and Pathology Groups

Independent clinical laboratories, hospital lab outreach programs, and pathology groups are experiencing reduced reimbursement for many lab tests, as payers struggle to control increased spending on clinical care. Reduced payments for many molecular and genetic tests experienced last year after the introduction of the new molecular CPT codes is just one example of how payers are seizing every opportunity to reduce what they pay for medical laboratory tests.

These are the reasons why cost cutting is front and center at the nation’s medical labs. It also is why there is high demand for clinical lab managers who are skilled in cutting costs and improving productivity in ways that sustain the lab’s financial stability, at a time when budgets and revenue are shrinking steadily.

“Labs today face a stark reality: not only are they getting less money today from their parent organizations and health insurance plans, but they are entering a multi-year period that will see equally dramatic reductions in lab test reimbursement and lab revenue,” stated Robert L. Michel, Editor-in-Chief of The Dark Report and Dark Daily.

“Consequently, this year’s budget struggles are not a one-off trend. To the contrary, all clinical labs and pathology groups will be dealing with yearly cuts in budgets and revenue that are equally as severe as what we’ve experienced in 2013 and 2014.”

Clinical Laboratories to Face Multiple Years of Reduced Revenue

Accept the fact that the entire profession of laboratory medicine is about to enter a multi-year period of reduced revenue and shrinking budgets, then the question that must be asked within every medical laboratory organization is this: “What is our strategy to control costs and improve productivity—while maintaining and improving the quality and value of the lab testing we deliver to physicians, patients, and payers?”

Robert Michel

“Two big challenges confront the nation’s clinical laboratories and pathology groups,” observed Robert L. Michel (pictured above), Editor-In-Chief of The Dark Report and Dark Daily. “One is the need to cut costs aggressively in the face of shrinking lab budgets and falling lab revenue. The second is how to increase the value of lab testing services the lab delivers to physicians, patients, payers.” Michel is in the process of organizing the 8th Annual Lab Quality Confab, which will take place on October 21-22 in New Orleans, Louisiana. This meeting is devoted to the use of quality management methods—such as Lean and Six Sigma—that labs can use to effectively cut costs, while simultaneously creating new value with their lab testing services. (Photo copyright The Dark Report.)

In its study of the nation’s most successful lab organizations, Dark Daily has noted that they generally share one important attribute: these medical laboratories are using Lean, Six Sigma, and process improvement methods with consistent success. In addition, these labs are also consciously teaching their entire clinical and operational staffs how to implement and sustain a culture of continuous improvement and system of prevention.

“Today’s healthcare environment requires all labs to manage their resources to achieve two related outcomes,” observed Michel. “First, the labs must eliminate waste, reduce the source of systemic errors, and do so in a manner that sustains a high-quality lab testing service. This is the necessary response to the year-over-year reduction in revenue that is happening now.

Cost-Cutting Savings Must be Used to Improve Testing Capabilities

“Second, labs must take the savings that result from these operational improvements and use that money to build their clinical capabilities,” he continued. “Technology in lab medicine is advancing at a rapid rate. To stay clinically relevant in the communities they serve, medical laboratories must have the resources to buy new instruments and hire lab scientists with skills and knowledge required to offer those new diagnostic services to their clients. Only by increasing the value of the lab testing services they offer to clinicians will community labs withstand the forces of consolidation and integration.”

The management challenge is straightforward, Michel continued. Get good at cutting costs and moving those resources to lab activities that add value for the lab’s physician clients and other stakeholders. Two examples of large clinical laboratory organizations achieving both outcomes can be found at Henry Ford Health System in Detroit, Michigan, and Sentara Healthcare, in Norfolk, Virginia. Both lab organizations will be presenting at the 8th Annual Lab Quality Confab, which will take place on October 21-22, 2014, in New Orleans, Louisiana.

Achieving and sustaining a strong culture of continuous improvement will be one theme in the story about the department of pathology and clinical laboratory at Henry Ford Health System. Last year, it became first integrated laboratory system in the United States to earn accreditation to ISO 15189: Medical Laboratories.

Developing Integrated Clinical Lab and Pathology Services

More significant is how this lab is going to the next level after developing a Lean culture within both the clinical lab and anatomic pathology departments. Today, its lab administration and clinical leaders are far down the path of offering an integrated diagnostic service to physicians practicing in the inpatient, outpatient, and outreach settings at Henry Ford Health System.

This important presentation will be delivered at Lab Quality Confab by Richard J. Zarbo, M.D., D.M.D., Sr. Vice President and Chair, Pathology and Laboratory Medicine; and his colleague, Guarav Sharma, M.D., Director, Regional Medical Laboratory, Associate Medical Director, Core Laboratory, Quality Systems and Regulatory Affairs.

Offering another perspective on taking the savings from process improvement and error reduction programs and applying them to improving quality and the value of lab testing services will be Lou Ann Wyer, Director of Laboratory Services at Sentara Healthcare. On its own initiative, this lab has developed individual quality control plans (IQCP) for several assays.

Information on How Labs Should Develop Their IQCPs

The lab’s adoption of a quality management system and its use of Lean methods were key elements that supported the home-grown effort to develop IQCPs for individual assays. With the pending implementation of IQCPs by the Centers for Medicare and Medicaid Services (CMS), the Sentara lab organization is now aligning that early IQCP work with the published requirements for the new CMS IQCP.

Currently, Lab Quality Confab is the only annual conference that provides managers working in clinical laboratories and anatomic pathology groups access to professional training in the methods of Lean, Six Sigma, process improvement, and quality management systems (QMS), such as ISO 15189.

Each year, specialized training—with certificates of completion—is offered in specific quality management tools such as Value-Stream Mapping and DMAIIC.

Lab Quality Confab also presents case studies from clinical labs and pathology groups using these methods in every aspect of lab operations, from specimen collection and transport to core lab automation and improving billing/collections.

Dates and location for this year’s Lab Quality Confab are October 21-22, 2014, at the Astor Crowne Plaza Hotel in New Orleans. On the program are 60 speakers and 40 sessions. The full agenda can now be viewed. For information on registration, use this link (or copy this URL and paste it into your web browser: http://www.labqualityconfab.com/register).

Helping Your Clinical Laboratory Expand Its Clinical Value

Nothing less than financial survival and the ability to remain independent are at stake for local clinical labs and pathology groups. That’s why it is smart to have your lab’s top management talent at Lab Quality Confab. It’s the best place to learn from other labs, master effective improvement techniques, and network with quality management leaders from the nation’s most prominent lab organizations.

The single best educational investment you can make in your lab’s future is to have your best and brightest contributors participate at this year’s Lab Quality Confab. They will come back with both the enthusiasm and the knowledge necessary to keep your lab on the path to clinical success and financial sustainability.

Best of all, the things they learn on October 21-22 will help your lab immediately cut costs with no compromise in quality—thus helping you meet the short-term challenge created by the current budget planning cycle at your parent institution. Register today and ensure your place at the 2014 Lab Quality Confab.

Related Information:

Information about Lab Quality Confab, including agenda and speakers

Registration for Lab Quality Confab

Henry Ford Health System Laboratories Obtain ISO 15189 Accreditation

Clinical Pathology Laboratory Leaders Reported Big Savings from Cost-Cutting Programs during Last Week’s Lab Quality Confab

Clinical Pathology Laboratory Industry’s Innovators in Lean, ISO 15189, and Process Improvement Gather in San Antonio